Federal Bank is issuing a growing perpetual bond with a face value of Rs. 1000. The interest amount for the first year is Rs. 40 and the interest amount will increase by 0.25% every year subsequently. What is the fair value of bond? Rs. 1000.00 Rs. 1066.67 Rs. 1666.67 Infinity

Federal Bank is issuing a growing perpetual bond with a face value of Rs. 1000. The interest amount for the first year is Rs. 40 and the interest amount will increase by 0.25% every year subsequently. What is the fair value of bond? Rs. 1000.00 Rs. 1066.67 Rs. 1666.67 Infinity

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Rs. 1000.00

Rs. 1066.67

Rs. 1666.67

Infinity

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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